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Round and round we go with distribution…

This week an article was published by EyeForTravel reflecting a recent survey taken amongst airliners.  I thought this would be a good time to highlight a snapshot of where things stand in my opinion with wholesalers, online travel agencies and middlemen when it comes to distribution of product inventory – specifically within the travel sector.

First off, read the full article here: Airlines to sell the majority of tickets direct to passengers by 2013: Survey.  Next, be sure and at least subscribe to their newsletter.  I’ve been keeping up with them for a few years now and find several valuable nuggets of info with regards to the travel industry and digital media.  Okay, so back to the commentary.

For those of us involved with product distribution (whether it’s tickets, books, reservations, or other retail items), we’ve all seen the struggle between dealing direct with the consumer or pushing our offers through a 3rd party wholesaler.  I say “struggle” because it often times feels like a big pendulum swinging back and forth.  Over the past twenty years, we’ve seen it.  At first, distribution channels were tapped because companies were finding themselves behind-the-curve with their online presence and e-commerce.  Then, as the dotcom economy heated up after 2002, merchants gained a lot of confidence in their ability to sell direct.  They kept up with usability standards, tested different ecommerce platforms and focused on each user having a smooth purchasing experience.  3rd party sites and wholesalers still had their place, but the merchants were a little more bold and started to shift their inventory.  The scale was about to tip over in favor of direct dealings with online consumers when the economy really slumped in 2008.

Merchants became nervous as online users became more frugal with their spending.  They started to doubt their direct paths with the buyer and scrambled to push inventory through 3rd party sites and wholesalers.  This brought intermediary sites back into the picture, gaining back all the ground they had lost in the previous 5-7 years.  But it appears within this article that the intention is still focused on driving as many direct sales as possible.  The customer data is retained, more revenue is made, it’s a better experience for the user and there’s a better relationship with buyers in the end.

This has become a “balancing act” for anyone involved with inventory management.  What is the appropriate channel mix to maximize revenue?  Apparently, the airlines are focused on 50/50 for now, potentially gaining more ground in the long run.  We’d all like to think that it’s optimal to cutout the middleman.  But just as there is a need for agencies, there will always, ALWAYS be a need for 3rd party distribution.  They ensure our product push into areas where we may falter.  They have the capability to leverage other brands and products as a way to entice users to engage with ours.  The trick is to figure out an appropriate balance for now, next year, and years to come.

I feel that the current economic climate caused many folks in the travel industry to lose faith and hit the panic button.  As airlines and hotels focus on 100% occupancy in bad times, they essentially hand over more control to the middleman, sometimes enough to influence pricing.  It’s a dangerous situation to be in when we all have specific ROI goals to keep our business running.  Consumers are more mature than ever on how they use the Web.  The majority of them will undoubtedly go where they can get the best price and experience.  If they feel that they’ll have a better experience with the price being the same, they’ll book direct.  Personally, I book direct whenever I can because I don’t always trust the communication between the 3rd party distributor and the merchant.  I highly doubt I’m alone.

With airlines moving more towards a direct relationship with the buyer, hotels won’t be far behind.  Eventually the online distribution agencies will need to come up with a hybrid advertising-sales model in order to maintain revenues.  Or perhaps the affiliate industry will have another jumpstart back into the mainstream.  Technology is getting better and so is the talent pool of developers.  With media fragmentation continuing to flourish, all of us in digital marketing (both direct retailers and middlemen alike) will feel the pressure to engage with users wherever we can… where it makes sense.  It’s a race.